Will my capital last in retirement?

About the author:

Terri Bradford
Author name:
By Terri Bradford
Job title:
Head of Wealth Management
Date posted:
06 December 2021, 10:00 AM

Australian's life expectancies are increasing over time. We can now expect to live longer – on average five to seven years longer – than our parents or grandparents did. This trend is rapidly increasing due to the amazing medical breakthroughs we are experiencing, as well as our increased knowledge on better living through diet and exercise.



The problem is that as we live longer, we also need to support ourselves for longer in retirement. This is compounded by the fact that, as a general trend, we are retiring earlier these days with the average age of retirement at 55.4 years1. This means, of course, the most common question pre-retirees ask is “how long will I live for, and will my capital last?”

There are no guarantees for how long our assets will last. It is up to everyone to plan sensibly so the chance of having enough capital to fund a comfortable lifestyle throughout retirement is increased.

The actual capital required to provide the required income will vary depending on how much you need in retirement, your age at retirement and how long you need the funds to last. The latest ASFA Retirement Standards Report released for the September 2021 quarter, shows:

“A couple aged around 65 looking to achieve a comfortable retirement will need to spend $63,799 a year, while those seeking a 'modest' retirement lifestyle need to spend $41,446 a year.”

The following table displays the estimated capital amount a couple would need to achieve at retirement depending on the level of income that is required. The capital amount will vary depending on the earnings rate achieved in retirement and eligibility for Centrelink benefits, as detailed below.

The assumption is that the income level will be sustained for at least a period equal to the couple's life expectancy, which for a male age 65 is 81.2 years and for a female age 65 is 85.3 years (source: abs.gov.au, 2018-2020).

Minimum capital requirements to fund income*

Required income in retirement (today's $)##
 Capital required at X% net earnings rate (today's $)
5%  6%  7%  8%  9% 
 $40,000 pa  $65,000  $60,000  $55,000  $50,000  $42,500
 $45,000 pa  $190,000  $170,000  $150,000  $125,000  $110,000
 $50,000 pa  $260,000  $250,000  $240,000  $200,000  $185,000
 $55,000 pa  $360,000  $340,000  $310,000  $290,000  $250,000
 $60,000 pa  $1,200,000  $1,100,000  $1,000,000  $950,000  $850,000
 $70,000 pa  $1,400,000  $1,300,000  $1,160,000  $1,050,000  $950,000

* Assumes before tax dollars; Retirement at age 65;  Discount rate 3.2% pa. Also assumes Centrelink entitlements each year where eligible with the remainder of income drawn from capital.    ## As at 20 Sept 21 couple-combined annual Age Pension = $37,924

Source: Morgans

Note the significant jump in the capital requirement figures when income reaches $60,000pa.

This is where Centrelink benefits effectively cut out, resulting in income being fully self-funded for retirement. How long you continue to derive income from your saved capital will obviously depend on how much you spend each year – and how much you actually “spend” could be different to what you had “planned” for. Of course, Centrelink is there to supplement other income if your financial position qualifies you for a full or part age pension payment.

However, there should be an attempt in any retirement planning to minimise dependency on Centrelink benefits.

The concern about continued affordability of Government benefits is very real. According to the 2021 Intergenerational Report, '…life expectancy at birth is expected to continue to increase from 80.9 years for men and 85.0 for women in 2018, to 86.8 years for men and 89.3 years for women by 2061.’ There obviously is an identifiable problem in the distant future in terms of affordability of Centrelink benefits.

However, recent reviews into Australia's tax system have resulted in the Government introducing tax incentives to older working Australians to remain in the workforce as an attempt to address this issue.

The eligibility age for age pension benefits will progressively increase to age 67 by 2023, commencing in 2017 so this is another factor to consider when planning for retirement. As at 20 September 2021, the age pension payment for singles is $967.50 per fortnight, and $729.30 for each member of a couple per fortnight – or $1,458.60 per fortnight combined (both rates include supplements).

Being able to rely on the age pension has gone some way to help retirees but the question remains 'is this still enough?'. You can see why being self-funded or largely self-funded in retirement, now more than ever, is very important.

The more you have saved in your superannuation and non-superannuation portfolios means a more comfortable standard of living in retirement – without relying on Government handouts.

Find out more

Speak to your adviser about how you can best position your retirement. The sooner you start planning, the greater the potential of reaching your retirement goals.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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